Mobile Home Park Mastery: Episode 188

Mobile Home Manufacturing Has Nothing To Do With Mobile Home Parks

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January single-wide sales of new mobile homes are down 7.5% from last year – and park owners could care less. In this Mobile Home Park Mastery podcast we’re going to review why there is no correlation between mobile home manufacturing and mobile home park performance. While many Americans believe that mobile home retail is where the money is, that couldn’t be farther from the truth and the future of both segments could not be more divergent.

Episode 188: Mobile Home Manufacturing Has Nothing To Do With Mobile Home Parks Transcript

You can't be in the mobile home park business and not receive periodic updates in the form of emails or display ads in magazines talking about all the latest statistics in new homes sold, new mobile homes sold, showing either single wide or double wide sales. This is Frank Rolfe, Mobile Home Park Mastery Podcast. We're going to talk about why those stats really don't matter, why in fact the retail side of the mobile home park industry has nothing to do with the land side of mobile home park ownership.

First thing is we're in completely different lines of business. Manufacturers and retailers, the only way they make money is building and selling mobile homes. Park owners make all their money in renting land, so we have nothing to do with each other. The fact that the word mobile home is attached to both of those would make the average person think that somehow we do, but in fact the futures and the fortunes of the manufacturing plants and all those street dealers mean absolutely nothing to the impact on mobile home park owners. They're simply just in no way correlated. You could have great stats on mobile homes sold, might be going out to land somewhere and not into a mobile home park, and yet mobile home parks could have no occupancy gain from those homes. Or you could have the converse. You could have horrible stats on manufacturing, you could have the sales down 50%. It would have no impact on park owners because again it doesn't mean anything as far as rates of fill and occupancy.

The best illustration of this is if you go back in time. Back in the late 1990s the industry was producing, the retail industry was producing, about 400,000 to 500,000 mobile homes built and sold per year. Then it plunged starting about the year 2000 when we had what was called the great chattel collapse. It was a period in which they were doing no income documentation, zero down mobile home loans and yes, it worked about as well as it did for regular stick built homes in 2007. Manufacturing stats plunged from about $500,000 a year to about $100,000 and they've been down there ever since. So we've had, for about 20 years, some of the lowest manufacturing stats in American history. That would then make most people think well, in that case mobile home parks must have been greatly affected, but that's not true. During that same 20 year run mobile home parks did the best they've ever done, so there's no tie in between home production and home sales, and mobile home park health. It just doesn't exist.

The second problem we have with those stats is that those stats only reflect the story of new homes, but many park owners, more so than ever before, are looking more at used homes. Why? Two big reasons. Number one, many states have foolishly adopted HUD installation guidelines that are onerous on the customer and make no economic sense. These guidelines require a solid concrete pad, concrete piers or concrete runners under new homes. It's done so that the home does not settle as much, and this $10,000 cost for these concrete appurtenances, the interest alone on that to the consumer is a multiplier of what it costs to re-level a home. It makes absolutely no economic sense, but it's required in many states on the new homes. The used homes have no such burden. So many park owners today aren't even looking for new homes because there's a $10,000 difference to the customer between a new home and a used home. Since we're trying to provide the most affordable form of housing and all of our money goes into the land rent, obviously the lower the home price the more the customer can afford to pay in land rent. So number one, new homes are a problem because of installation guidelines.

Number two, new homes are a problem because of COVID and these new additional COVID price increases that are making some mobile homes in many markets completely unaffordable. These increases are as much as $10,000. When you're talking a home that was $30,000 to then add an additional $10,000 on it is a huge price increase, about a third. So as a result many park owners are now looking more at used inventory and those stats on production have nothing to do with the way many park owners fill their lots today.

Next, we don't lose the homes. The dealers, the manufacturers for the longest time tried to convince customers to trade in their mobile home like a car every few years. That was kind of the racket they had going back in the fifties and the sixties. They would market the homes kind of like an automobile, and they'd always bring out the new design and say, "Well, why do you want to have that old, old mobile home trailer when you can get the new, fancy one?" And of course they all looked about the same, but customers were misled because they thought well I do turn my car in every so often. But the truth of the matter is the old homes last pretty much forever, and people have figured that out over the decades. So today, the average mobile home park has got homes in there from the seventies and the eighties and the nineties all the way through current, but no one has any intention of trading in any of those models. Since the homes never leave the park, no one has $5,000 capital to move them, nor does anyone really have the desire to. On top of that, the stuff that is pre 1976 you can't move anyway because it's pre HUD, and the stuff that's newer than 1976 but still a little bit old it would be very risky to try and pick that home up and move it after sitting around for decades in position.

That's why I got in trouble with my famous Waffle House quote from years ago. I was trying to explain to a Bloomberg reporter why mobile home parks have the lowest default rate in American industry, but restaurants have the highest default rate. And I came up with the vision for her, which probably was not the greatest choice of words but it is in fact accurate that if you take a regular Waffle House, every day they open up the doors and they don't know if anyone is going to come in. that's why it has such a high default rate, it's a complete gamble. But a mobile home park is like a Waffle House where the customers are chained to the booths because we know every day exactly how many customers we will have. It's the same number that we had yesterday and the same number we will have tomorrow. So since homes down leave as you fill lots, you have fewer vacant lots. At some point you have no vacant lots and you don't need home building at all. So since the homes never leave the property for the most part, the importance to us of retail and manufacturing is very, very small. Because my business is just fine whether homes are sold or not.

It's also important to remember that retailers, manufacturers, and mobile home park owners are really at odds with each other in many ways. Our business is built upon land rent. The higher the land rent, the less money that is possible for the customer based on their housing budget to spend on the home. But the retailers and manufacturers, they always want to strive to make the homes as expensive as they can because that makes more profit for them. I've bought parks from people who were in the retail industry so they had the street retailer dealerships for the various manufacturers. And what they would do is they would deliberately keep their lot rents low so they could make the home payments higher, and therefore could do more expensive homes. We had a property once in Illinois that even had a two story mobile home in it. This guy was a mobile home dealer and he convinced a customer to buy a two story mobile home. These are insanely expensive, over $100,000 mobile home. And to make the numbers tie he gave the person a very artificially low lot rent. That just makes absolutely no sense. So yes, he made some money on the sale of the home, but he punished the big money which is the guy that owned the lot. So since we're trying to maximize lot rent and the manufacturers are trying to maximize home payment, as you can see we are somewhat contradictory.

Now, the big question would be where are we looking forward. How important are new home manufacturing and retail stats going forward for park owners? Well, it's the dream of every park owner to be 100% occupied. It's the dream of every park owner to own absolutely no homes. So there will reach a time in the future. You look at our industry and our current trajectory, there will come a time when we no longer care one iota about manufacturing and retail sales regarding our own mobile home parks. The trajectory that we are on as an industry is right now we are roughly in the 80% range of occupancy but those parks that are owned by professional owners are barreling towards 100%. Many are already there, many are up in the 90%. In the not too distant future, probably at least five years out, most of the mobile home parks that are ever going to be filled will be filled.

Then exactly why do we care? What happens with the retail manufacturing side regarding park owners? That's probably one of the reasons that mobile home manufacturers and retailers are so aggressively trying to find new avenues for the product. They tried to convince HUD during the Trump administration of a new product called Cross Mod. The reason being if you could build a Cross Mod home, which is basically a cross between traditional manufactured HUD code home and modular homes, they wanted to place these in residential lots inside of city limits. So the whole point of it is they're trying to break away from the traditional mobile home model, the traditional mobile home park model because they know there's a limited amount of space left for those mobile homes. Once they achieve that, all that's left is to put mobile homes on land, whether it's on a residential lot or maybe out in the country somewhere. So at one point, the manufacturing and retail industry will be even farther separated from mobile home park owners.

So when you see these stats, when you see things that tell you that home sales are up or home sales are down, or this many shipments made of single sections, it just doesn't matter at all as a park owner. Now it does give a little more clarity to the state of the nation as far as the adoption of the stereotype against mobile homes. Obviously the more homes being sold, that's a good thing. That means people are embracing the product. And also you may get, you've got some vacant lots, you may get a home or two out of all those new homes supposedly being sold. But beyond that, there really just isn't any significance or tie in between manufacturing, retail, and mobile home park ownership. This is Frank Rolfe, the Mobile Home Park Mastery Podcast. Hope you enjoyed this. Talk to you again soon.